Kakaako: Remade for the 21st Century

http://www.hawaiibusiness.com/Hawaii-Business/September-2014/Kakaako-Remade-for-the-21st-Century/
Kakaako: Remade for the 21st Century
BY POWELL BERGER

No matter which lens you use, Kakaako is where the transformations in Hawaii’s 21st-century life are most clear.

The demographic lens: You already know there are more older people today, while young people are delaying both marriage and their families, and then having fewer children than their boomer parents. Many of those people – young, old and in between – don’t want or can’t afford a house in the suburbs, so high-rise Kakaako is a common answer for them.

The transportation lens: Instead of driving everywhere, more people today want to walk, bike or ride transit to work, play or run errands. The new Kakaako promises that, too.

The live/work/play lens: People don’t want to waste an hour or more a day in commuter traffic, and then hours more on the weekend while driving to shop, run errands and enjoy family recreational time. They want everything close by: home, work, shops and leisure activities. The multifaceted Kakaako also offers that convenience.

The environmental lens: The idea is that if lots of people live in Kakaako instead of elsewhere on Oahu, we are better able to keep the country country. And there will be fewer people burning fossil fuels in their cars while crawling in rush-hour traffic to work.

In so many ways, the live/work/play promise of Kakaako seems to better match the emerging 21st century way of life than the rest of Oahu. The area’s redevelopment is still in its early stages and likely to span another two decades, so it’s not clear if it will deliver on its promises. But even though Kakaako is not for everyone, the robust sales of both workforce and luxury condos indicate that urban planners and developers were right: Build it and they will come.

Howard Hughes Corp. – owner of the Ward properties and the biggest private landowner in Kakaako – reports that more than 70 percent of the units in it first two buildings, Waiea and Anaha, are already sold. The Oliver McMillan project called Symphony, on Kapiolani Boulevard at Ward Avenue, is more than 75 percent sold, and completely sold out are both phases of the workforce housing project at 801 South St., once site of the old Newspaper Building and then the Hawaii Five-0 studio.

Waiea (left), a luxury condominium tower being built by Howard Hughes Corp. across from the Ward Entertainment Center, is scheduled to be completed by the end of 2016. Anaha (right) is a residential tower and townhome project planned for the Diamond Head/mauka corner of Kamakee and Auahi streets. Rendering: The Howard Hughes Corporation

Keeping track of the moving parts in Kakaako is a challenge. Kamehameha Schools’ nine-block area on the Ewa end of Kakaako, centered on Keawe, Auahi and Coral Streets, is being transformed under its master plan, Our Kakaako. That plan envisions a mixed-use community with an eclectic vibe of artists, startups and entrepreneurs sharing space alongside mid-rise and high-rise housing that will sell or rent at various price-points.

On the Diamond Head end of Kakaako, Howard Hughes’ Ward Village promises a revitalized urban community of retail, restaurants, entertainment and mostly high-rise housing developments on the 60 acres fronting Kewalo Basin and the Ewa end of Ala Moana Beach Park.

Over the next 20 years, these developers envision as many as 30 new mid-rise and high-rise housing developments inside and just outside Kakaako. Howard Hughes made its long-term intentions known by refurbishing the iconic honeycombed IBM Building, now slated to be its Hawaii headquarters and sales center for at least the next two decades. The building’s lobby includes an impressive model of Kakaako’s future, complete with the rail line running down Queen Street, 20 proposed housing developments, a four-acre park in the middle of it all, and old, familiar streets re-routed, widened and improved with bike lands and sidewalks designed to make the new Kakaako a pedestrian- and cycle-friendly urban community. Howard Hughes is moving quickly to get it done: Besides the two buildings already permitted and underway, a permit application was filed in mid-August to build two towers on the Ward Warehouse site.

At the other end of the district, Kamehameha’s Our Kakaako offers a similar vision of the future, featuring Salt, a “people-first, pedestrian experience” with green space, restaurants, shops and open-air gathering places. A sneak-peek into this future has been the Kakaako Night Market, a monthly gathering of artisans, food vendors and performers. Another early vision is the indoor park, Kakaako Agora, which opened in June in an empty warehouse on Cooke Street, and was designed by Japanese architects Yoshiharu Tsukamoto and Momoyo Kaijima of the firm Atelier Bow-Wow.

Kakaako Agora, which opened in June on Cooke Street, is called an indoor park. Photo: Mariko Reed

HCDA says it ensures that each project harmonizes with the live/work/play vision and complies with necessary city and county permits. The process has met with controversy at times; neighbors – often those living in the existing high-rises – complain that the new projects will greatly diminish view planes, while others fear inadequate green space, increased traffic and overloaded infrastructure.

HCDA’s compliance assurance officer Lindsey Doi says the infrastructure concerns are misplaced. “Capacity studies are done by the developers and individual providers before the plans are ever taken to HCDA,” she says. For instance, she says, “Board of Water Supply has to approve it, or tell the developer what additional capacity is needed.”

Doi also points out that the state made over $250 million in infrastructure investments back in the 1980s and 1990s, when the Kakaako Redevelopment Authority was first driving development there. She acknowledges that additional capacity will likely be needed, but in those cases, the developers are on the hook. “Howard Hughes has already been told it will need to install a new sewer line near the theatre for its future buildings,” she reports.

As for schools to educate the children of these new residents, the answers are more elusive. David Striph, senior VP for Howard Hughes, says decisions about schools are entirely up to

HCDA and the state Department of Education, while Doi deferred most questions on the issue to the DOE.

Donalyn Dela Cruz, the DOE’s communications and community affairs director, reports that the department is monitoring the developments in Kakaako and waiting to see what gets built, who buys the units and what kind of need is created. Citing speculative development in the past, she says, “We follow the paper trail of permits, and we don’t commit until the need is evident.”

Dela Cruz says an evaluation of existing school capacity suggests that Washington and Central middle schools and McKinley High School have space for new students in the coming years, while Queen Kaahumanu and Royal elementary schools will reach full capacity in three years. She also points out that the DOE has no land in the region, so any future developments will require a cooperative effort with HCDA and landowners to secure space, and that from concept to completion, the building of a new school would take at least six years. As for funding, Dela Cruz reports that the only mechanism through which developers can be tapped to help fund new infrastructure is the school impact fee, authorized by the state Legislature in 2007 via Act 245, and that the DOE is currently developing an analysis for that purpose.

Ask Michael Formby, director of the city Department of Transportation Services, about the impact on traffic, and he’ll tell you he’s confident the new Kakaako will have fewer cars on the roads than are there today. Hard to imagine with all those added residents, but here’s his rationale: The Kakaako rail station near the intersection of Halekauwila Street and Ward Avenue is scheduled to open in mid-2019. Plus, the master plans for both Howard Hughes and Kamehameha Schools include pedestrian-friendly and bike-friendly infrastructure, and

the inclusion of restaurant, retail and grocery options within short walks, so residents don’t need to pull their cars from the garage every time they go out.

“I lived in the neighborhood for 18 months,” says Striph, “and often it took longer for me to get the car out of the garage than it did for me to just walk to dinner or to run an errand.”

Recent Census data and various studies, including some by the U.S. Public Interest Research Group, support the notion that Americans’ obsession with cars is declining. Americans now drive fewer miles per year on average than they did eight years ago, and young people wait longer on average to get a driver’s license, if they get one at all. Formby, HCDA officials and the project developers are unanimous in their belief that the new Kakaako will persuade more people to use rail, buses, bikes and sidewalks and leave their cars parked at home.

The economic benefit to city and state coffers is hard to ignore. Striph says the Waiea building now pays $171,000 a year in city property taxes as an empty lot, but is forecast to pay $2 million a year once complete. The project’s construction is slated to generate $55 million in excise taxes, create 5,000 temporary jobs and generate a total economic benefit of $925 million. “And that’s just one building,” Striph points out.

Paul Brewbaker, the local economist working with some of the developers, is also bullish on the opportunity created by increased tax revenue. He calls it tax increment financing: The idea that future tax revenues can be pledged on bonds that will pay for needed infrastructure. “The property tax can be capitalized to pay for any needed improvements,” he says.

Many businesses are already feeling the economic impact. Koa Wagner, founder and owner of Blueprint Audio Visual LLC, has watched his business grow six-fold over the last couple of years while working with most of the developers to install high-tech systems in their sales centers and in the high-rise projects.

Wagner says he has heard similar stories from many others working on the construction sites and elsewhere. “One guy told me he’d been on unemployment for 19 months. Now he’s got good, consistent work for the next four to five years. That’s a step in the right direction.”

He is excited about Kakaako’s future. “I’m a Hawaiian kamaaina, and I don’t see the problem. This isn’t the North Shore, where we’re ripping out trees and destroying nature,” he says. “It’s about time this part of town got refreshed.”

Christy Cho, founder and owner of Harry’s Café, at the corner of Kamakee and Waimanu, has a similar upbeat view. Loyal customers – many of who have their own coffee mugs behind the counter – have been enjoying Harry’s loco moco, early riser 99-cent breakfasts and plate-lunch specials for 17 years. Cho says business is good and that new customers from the developments are sitting side by side with her long-time customers-turned-family. “We have lots of stories here, lots of history. Now we have new faces joining the old.”

Concerns about green space have generated impassioned debates. Howard Hughes has committed 4 acres in the middle of its development to Ward Village Green, a park space inspired by the fishponds and landscaping of Victoria Ward’s home.

“We are taking concrete and old metal buildings in the middle of the city and making it a park. Who does that?” says Striph. “We do it because our goal is to create a place and experience, right in the heart of Honolulu.”

With so much in flux, emotional concerns about the gentrification of a region long known for its gritty, industrial nature and mom-and-pop businesses are natural. Striph takes a developer-minded stance. “You can be all nostalgic for old Queen Street that’s crowded and

floods all the time and has potholes everywhere, or you can say, ‘Let’s try to make room for everyone and revitalize the area.’ ”

Doi takes a different tack, pointing out that it’s only the Auahi and Pauahi regions of Kakaako that are being redeveloped. “Central Kakaako and its unique mix of small landowners, businesses and industrial areas will be preserved,” she says. That means, she says, the furniture importers, auto body shops, tattoo parlors and even some of the “colorful” night clubs will likely remain. Maybe the old Kakaako will find new customers and new opportunities in the refurbished Kakaako.

An Economist Makes (Dollars and) Sense of It All

SOME may label the construction activity in Kakaako “condo-mania,” as the Honolulu Star-Advertiser did, but local economist Paul Brewbaker says the opposite is true.

“The only time we permitted fewer new housing units on Oahu was during World War II,” he points out. “There are barely a dozen cranes along the Honolulu skyline,” he says, and a third of those are at Ala Moana Center. “Twenty or 30 cranes, now that’s development!”

To understand him, look at the chart on the opposite page. Drawing on historical data, Brewbaker’s chart shows the housing units authorized annually by city building permits. Those numbers suggest that new housing on Oahu remains near historic lows – not even keeping up with the increase in population.

Brewbaker’s bullishness about the new Kakaako has a lot to do with his developer clients, but those who know him quickly point out that he always speaks his mind, regardless of clients and corporate interests. The economist says four distinct factors come together in a “perfect storm” that supports the transformation of Kakaako:

• The continued rise of the service-sector economy in the 21st century, across Hawaii, America and around the world;

• The power of agglomeration, with dense clusters of people living and working in the same area, thus creating more opportunity for synergy and collaborative creativity.

• An aging population that creates a distinctly different 21st century demographic; and

• A need for housing on Oahu, as evidenced by housing prices that are among the highest in the nation.

Brewbaker maintains that the urban core of Honolulu will drive much of the entire state’s economic growth in the first half of the 21st century, and that much of that growth will hinge on the continued expansion of the state’s service sector. While sometimes belittled as low-wage/low-impact jobs, today’s service sector bears little resemblance to its mid-20th-century counterpart. The service sector now includes plenty of middle-class and executive-level jobs in finance, information, healthcare, technology, real estate and personal services, and is one of the most robust elements of the 21st century U.S. economy.

“I drove a forklift at Dole Cannery,” he says. “That world is over. Today’s world is one in which we produce services and information and have fresh strawberries at Safeway every day of the year.”

Reports from the Urban Land Institute and other researchers underscore the idea that 21st-century living is more urban, with cities around the country creating vertical communities for housing needs and community vibe. “The living-in-the-suburbs-and-working-in-the-city model is gone or dying in every city on the planet,” Brewbaker says. Honolulu’s crushing traffic, high gas prices and parking woes all enhance the appeal of Kakaako’s live/work/play model.

The island’s changing demographics also play a role. In the mid-20th century, population pyramid was fat on the bottom with lots of children and pointed on top with a few elderly people. Today, the pyramid is more like a square, with age groups of relatively equal size. The number of people 65 and older in Hawaii is now almost equal the number of school-age children.

“These people weren’t here before. They didn’t live that long,” Brewbaker says. National and local research suggests this aging population finds urban living attractive, with culture, community and health care close to their front doors.

Last, and perhaps most critical, Oahu’s housing shortage is crippling. Smaller households and a growing population leaves Brewbaker forecasting the island needs to add 3,500 housing units a year just to keep up with demand.

“In the 25 years from the end of World War II to 1974, we built an average of 8,000 housing units per year on Oahu. We haven’t built 2,000 per year in the last five years,” he explains.

Brewbaker says the mobility of capital in the 21st century further complicates the equation. “Even if nothing happens, 50 guys from California come to Hawaii to buy condos,” he says. By diversifying the available housing, especially the ultra-luxury units being built in Kakaako, the rest of the inventory is left for local residents.

What if the developers can’t sell all the high-end units being built? Brewbaker says that’s their problem. They take the risk and reap the reward if it succeeds. “If they fail, local residents have a shot at multimillion-dollar units at a fraction of the price.”

As for the opposition to the Kakaako development, he doesn’t pull his punches. His caustic take on the NIMBY opposition is: “Keep the country country, but don’t make the city city.” His view: Modern urban planning is more conducive to green space than its 20th-century counterparts.

He’s also incredulous that much of the opposition to development in Kakaako comes from existing residents of Kakaako towers. He mocks that opposition as “Don’t build a high-rise next to my high-rise.”

The Collection is a residential tower and townhome complex that will be built by Alexander & Baldwin at the Diamond Head/mauka corner of Ala Moana and South Street. Rendering: Alexander & Baldwin

In others areas, developers Alexander & Baldwin, Kobayashi McNaughton and Downtown Capital have similar mixed-use projects underway or close to groundbreaking, ranging from the ultra-luxury developments at Ala Moana Center to the Phase 2 of the workforce housing project at 801 South St.

Keeping tabs on it all is the Hawaii Community Development Authority (HCDA), the state agency established in 1976 to coordinate the redevelopment of Kakaako.

HAWAII AMERICANA REALTY

For the past 14 years, Mark G. Howard has practiced his skills as a licensed Realtor in Santa Fe, New Mexico, Las Vegas, Nevada and now Principal Broker & President of 'Hawaii Americana Realty', in Honolulu, Hawaii. He has gained a competitive edge in the real estate market by earning his status as an Accredited Buyer’s Representative (ABR).